McKinney v. American Standard Insurance Co.

April 14, 1998

No. 3--97--0252
_________________________________________________________________

IN THE APPELLATE COURT OF ILLINOIS

THIRD DISTRICT

A.D., 1998

WILLIAM J. MCKINNEY, ) Appeal from the Circuit Court
Individually and as Special ) for the 14th Judicial Circuit,
Administrator of the Estates ) Rock Island County, Illinois
of ANN MCKINNEY, deceased )
and BABY BOY MCKINNEY, )
deceased, )
Plaintiff-Appellant, )
) No. 95--MR--112
v. )
)
AMERICAN STANDARD INSURANCE )
COMPANY OF WISCONSIN and )
AMERICAN FAMILY MUTUAL )
INSURANCE COMPANY, foreign ) Honorable
corporations, ) Joseph F. Beatty
Defendants-Appellees. ) Judge, Presiding
________________________________________________________________

JUSTICE BRESLIN delivered the opinion of the court:
_________________________________________________________________

We are asked to determine whether an underinsured motorist
(UIM) endorsement allows recovery when the insured recovered less
than the damages he was legally entitled to recover from the
tortfeasor's insurer, but more than the limits of recovery under
his underinsured motorist endorsement. Plaintiff William McKinney
contends that under the underinsured motorist clause in his
American Standard Insurance (American) policy, American agreed to
coverage for the entire amount of his compensable damages, subject
to the limits of his policy, less any recovery from the tortfeasor.
We agree. Accordingly, we reverse and remand for further
proceedings.

BACKGROUND
McKinney's wife and unborn child were killed in a car accident
when Robert Cromie ran a stop sign. The policy Cromie held limited
liability to $100,000 per person and $300,000 per accident.
Cromie's insurer paid McKinney $300,000 and Cromie personally paid
McKinney another $18,000. But McKinney alleged that his total
damages exceed $318,000, so he turned to his own insurance policy
for coverage.
McKinney's American policy provided UIM coverage with limits
of liability of $25,000 per person and $50,000 per accident. In
addition, the policy stated:
"Underinsured motorists (UIM) Coverage Endorsement -
We will pay compensatory damages for bodily injury which
an insured person is legally entitled to recover from the
owner or operator of an underinsured motor vehicle. The
bodily injury must be sustained by an insured person and
must be caused by accident and arise out of the use of
the underinsured motor vehicle.
* * *
Underinsured motor vehicle means a motor vehicle which is
insured by a liability bond or policy at the time of the
accident which provides bodily injury liability limits
less than the damages an insured person is legally
entitled to recover.
* * *
Limits of liability -
Any amounts payable will be reduced by:
1. A payment made or amount payable by or on behalf of
any person or organization which may be legally liable,
or under any collectible auto liability insurance, for
loss caused by an accident with an underinsured motor
vehicle."
McKinney brought a declaratory judgment action seeking to
recover under his UIM clause. He claimed that, because Cromie was
an underinsured motorist, he was entitled to prove the entire
amount of damages and recover the difference between the amount
paid and his total damages up to the full policy limit. American
denied that it owed any amount since the $318,000 recovered
exceeded McKinney's UIM limits of $50,000 and moved for summary
judgment on this basis. The trial court granted American's motion
and McKinney appeals.
ANALYSIS
Summary judgment should only be granted when there are no
genuine issues of material fact and the moving party is entitled to
judgment as a matter of law. Loyola Academy v. S&S Roof
Maintenance, Inc., 146 Ill. 2d 263, 586 N.E.2d 1211 (1992). When
the only issue concerns the construction of an insurance policy,
the cause of action may appropriately be decided by summary
judgment. Giardino v. American Family Insurance, 164 Ill. App. 3d
389, 517 N.E.2d 1187 (1987). Appellate review of summary judgment
is de novo. In re Estate of Hoover, 155 Ill. 2d 402, 615 N.E.2d 736 (1993).
The sole issue is whether the term "amounts payable" as used
in the policy refers to the total amount of damages legally due
McKinney, or McKinney's underinsured policy limit of $50,000.
When the language of an insurance policy is clear and
unambiguous, the court must construe the policy according to the
plain and ordinary meaning of its provisions. Allstate Insurance
Co. v. Gonzalez-Loya, 226 Ill. App. 3d 446, 589 N.E.2d 882 (1992).
The paramount objective is to ascertain and give effect to the
intention of the parties. International Minerals & Chemical Corp.
v. Liberty Mutual Insurance Co., 168 Ill. App. 3d 361, 522 N.E.2d 758 (1988). In ascertaining their intentions, all parts of the
insurance contract should be considered together. Grevas v. United
States Fidelity and Guaranty Co., 152 Ill. 2d 407, 604 N.E.2d 942
(1992). If words in a policy are susceptible to more than one
reasonable interpretation, they are ambiguous and will be construed
in favor of the insured and against the insurer. Outboard Marine
Corp. v. Liberty Mutual Insurance Co., 283 Ill. App. 3d 630, 670 N.E.2d 740 (1996). Whether an ambiguity exists is a question of
law for the court to determine. Marroquin v. Auto Owners Insurance
Co., 245 Ill. App. 3d 406, 614 N.E.2d 528 (1993).
First we must focus on the limits of liability provision of
the UIM endorsement which states that "any amounts payable will be
reduced by a payment made or amount payable by or on behalf of any
person or organization which may be legally liable." McKinney
contends that this language requires American to pay him for the
full amount of compensatory damages less the amount paid by the
tortfeasor and his insurer, subject, of course, to his UIM limits.
American contends that the provision does not require compensation
for the full amount of damages. Relying, in part, on Cummins v.
Country Mutual Insurance Co., 178 Ill. 2d 474, __ N.E.2d __ (1997),
it asserts that the limits of liability provision limits coverage
to $50,000 minus the amount paid by the tortfeasor and his insurer.
Because Cummins is distinguishable on its policy language, we agree
with McKinney.
In Cummins the injured plaintiff carried UIM coverage in the
amount of $50,000 and the tortfeasor carried identical liability
limits of $50,000 per person. The plaintiff recovered $35,000 from
the at-fault driver and sought further recovery from his own
insurer. The insurer refused, claiming that the tortfeasor was not
an underinsured motorist under the policy's definition. In
reaching its conclusion, the court recognized that the UIM statute
indicates coverage when there is a gap between the amount actually
recovered from the tortfeasor and the UIM policy limit of the
injured party. The Illinois Insurance Code (Code), 215 ILCS 5/1 et
seq. (West 1996), characterizes an underinsured motor vehicle as an
insured vehicle with liability insurance limits "less than the
limits for underinsured coverage." 215 ILCS 5/143a-2(4)(West 1996).
The insurance policy at issue in Cummins also defined an
underinsured motor vehicle as one for which the sum of the limits
of liability under all bodily injury liability insurance policies
is "less than the limits for underinsured coverage." (Emphasis
added) Consequently, the court applied a statutory analysis to the
UIM provision of the policy. Cummins, 178 Ill. 2d 474, __ N.E.2d __
. The policy in Mr. McKinney's case is different. The UIM
endorsement defines an underinsured motor vehicle as one with "a
liability *** policy *** which provides bodily injury liability
limits less than the damages an uninsured person is legally
entitled to recover." (Emphasis added.) This definition is broader
and more inclusive than that found in the Code. See Johnson v.
American Family Mutual Insurance Co., 193 Ill. App. 3d 794, 550 N.E.2d 668 (1990)(a policy can provide broader UIM coverage than
statutory coverage). Accordingly, defining the policy in terms of
the Code is inadequate. If McKinney can prove damages greater than
$318,000.00, Cromie would be considered an underinsured motorist
under the policy American issued to him.
In determining the extent to which the limits of liability
clause effects McKinney's UIM claim, it is appropriate to consider
an insured's reasonable expectations and the coverage intended by
the policy. Cummins, 178 Ill. 2d 474, __ N.E.2d __ . The language
of the American policy proclaims that it will pay all compensable
damages. Thus, a reasonable person in the position of the insured
could expect "amounts payable" to be the equivalent of the total
damages incurred. Several jurisdictions agree with this
interpretation. See Delaplane v. Francis, 636 N.E.2d 169 (Ind. App.
1994)("amounts payable" refers to the total bodily damages, not the
coverage limit); American Family Mutual Insurance Co. v. Turner,
824 S.W.2d 19 (1991)("amounts payable" means the determined amount
of damages sustained reduced by the amount paid by the underinsured
motorist); Wood v. American Family Mutual Insurance, 148 Wis. 2d
639, 436 N.W.2d 594 (1989), overruled on other grounds by,
Matthiesen v. Continental Casualty Co., 193 Wis. 2d 192, 202, 532 N.W.2d 729, 733 (1995) (a reasonable person would equate "amounts
payable" to the total damages suffered); American States Insurance
Co. v. Estate of Tollari, 362 N.W.2d 519 (Iowa 1985)(insured can
recover his entire loss from the tort less the tortfeasor's
available liability insurance proceeds, subject to the underinsured
coverage). Because the provisions of this policy are susceptible
to more than one reasonable interpretation, we find that the term
"amounts payable" is ambiguous. Thus, the construction most
favorable to McKinney must be adopted.
Were we to accept American's interpretation that "amounts
payable" means the UIM coverage limit, the insurer would never pay
its UIM policy's limits. An insurance company would always
subtract at least some recoverable amount (recovered from the
tortfeasor and his insurer) from the amount payable to the insured
under her underinsured coverage. Thus, an insured could never
recover the full benefit of her underinsured motorist coverage. See
Buck v. American Family Mutual Insurance Company, 921 S.W.2d 96
(Mo. App. 1996); Wood, 148 Wis. 2d at 647, 436 N.W.2d at 600 (the
endorsement for UIM coverage would be nothing more than an illusory
contract).
We are also unpersuaded that coverage is compelled by the
decision in Giardino v. American Family Insurance Co., 164 Ill.
App. 3d 389, 517 N.E.2d 1187 (1987). The American Family Insurance
policy in Giardino contained the identical language considered in
the instant case. The plaintiff's policy provided UIM coverage of
$100,000 and the underinsured motorist paid the plaintiff $100,000.
The court held that the plaintiff was not entitled to recovery
because the "amount payable" to the insured equaled the UIM
coverage limit reduced by any payment from the tortfeasor. In so
doing, the court considered the statutory definition and noted that
its holding brought the policy in line with the Code. Giardino,
164 Ill. App. 3d 389, 517 N.E.2d 1187. As previously discussed, we
find such an analysis inappropriate and disagree with the holding
in Giardino.
Consequently, we hold that coverage for the UIM policy in this
case is available for that margin between the amount received by
McKinney from the underinsured and the actual damages he is
entitled to recover. This does not mean American is responsible
for more than the contracted amount of underinsured motorist
coverage, i.e. $50,000. McKinney has received $318,000 from the
underinsured driver. The limits of liability clause of the policy
operates to subtract this amount from the total damages sustained
by McKinney. The amount remaining is the amount recoverable from
American, subject to the UIM coverage limit of $50,000.
Accordingly, we remand this case to the trial court for a hearing
on the total amount of damages incurred.
For the foregoing reasons, the judgment of the circuit court
of Rock Island County is reversed and remanded.
Reversed and remanded.
LYTTON and SLATER, JJ., concur.